Income Tax Provision

12 Months Ended

Jun. 30, 2018

Note 12 – Income Tax Provision

On December 22, 2017 the U.S. President signed the Tax Cuts and Jobs Act (the “Tax Act”) into law. Effective January 1, 2018, among other changes, the Tax Act (1) reduces the U.S. federal tax rate from 35 percent to 21 percent, (2) changes the rules relating to net operating loss carryforwards and carrybacks, (3) eliminates the corporate alternative minimum tax (“AMT”) and changes how existing AMT credits can be realized and (4) requires companies to pay a onetime transition tax on certain unrepatriated earnings of foreign subsidiaries.

The Tax Act did not have a material impact on our financial statements since our temporary differences in the United States are fully offset by a valuation allowance and we do not have any significant offshore earnings from which to record the mandatory transition tax.

On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the Tax Act as “provisional” when it does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. The changes in the Tax Act are broad and complex. The final impacts of the Tax Act may differ from the Company’s estimates due to, among other things, changes in interpretations of the Tax Act, further legislation related to the Tax Act, changes in accounting standards for income taxes or realized interpretations in response to the Tax Act, or any updates to estimates the Company has utilized to calculate the impacts of the Tax Act. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the related tax impacts. The Company currently anticipates finalizing any resulting adjustments by the end of our next fiscal year ending June 30, 2019. The Company, based on current knowledge did estimate the impact of SAB 118 on its income tax provision for the year ended June 30, 2018. The impact on the Company’s financial statements for the year ended June 30, 2018 is immaterial, primarily because the Company has a valuation allowance on deferred tax assets.

The Company has no current tax expense due to its losses.

The income tax expense for the years ended June 30, 2018, 2017, and 2016

differed from the amounts computed by applying the U.S. federal income tax rate of 28.1%, 34% and

34% r

espectively

as follows:

	For the Year Ended
	June 30, 2018			June 30, 2017			June 30, 2016
Federal Statutory Rate		-28.10	%		-34.00	%		-34.00	%
Research and Development Credit		0.40	%		-6.87	%		-6.10	%
State Tax Rate		-3.79	%		-4.95	%		-6.18	%
Change in Statutory Federal Rate		62.36	%		-	%		-	%
Valuation Allowance		-30.87	%		45.82	%		46.28	%
Effective Tax Rate		-			-			-

The significant components of the Company’s deferred tax assets and liabilities at June 30, 2018 and 2017 are as follows:

	June 30, 2018			June 30, 2017
Net operating losses	$	24,839,394		$	23,839,852
Research and development credit		6,198,377			6,217,612
Other		6,047,301			10,336,196

Total gross deferred tax assets		37,085,072			40,393,660

Less: valuation allowance		(37,085,072	)		(40,393,660	)

Net deferred tax assets	$	-		$	-

At June 30, 2018 and 2017, the Company has recorded a full valuation allowance against its net deferred tax assets of $37,085,072 and

$40,393,660,

respectively. The change in the valuation allowance during the year ended 2018 was $(3,308,588) and a full valuation allowance has been recorded since, in the judgment of management, these assets are not more likely than not to be realized. The Tax Cut and Jobs Act of 2017 was enacted in December 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 34% to 21% and eliminates the alternative minimum tax (“AMT”) for corporations. Since the deferred tax assets are expected to reverse in a future year, it has been tax effected using the 21% federal corporate tax rate. As a result of the reduction in the corporate income tax rate, the Company wrote down approximately $5.3 million of the gross deferred tax assets and valuation allowance against the gross deferred assets for the year ended June 30, 2018, and which has no impact on the financial statements for the year ended June 30, 2018.

As of June 30, 2018, the Company has approximately $70,000,000, of gross net operating loss carryforwards. As of June 30, 2018, credit carryforwards for federal and state purposes

are $6,539,647 and $372,546, respectively. The net operating loss and credit carryforwards begin to expire in 2025.

Due to the change in ownership provisions of the Internal Revenue Code, the availability of the Company’s net operating loss carry-forwards could be subject to annual limitations against taxable income in future periods, which could substantially limit the eventual utilization of such carryforwards. The Company has not analyzed the historical or potential impact of its equity financings on beneficial ownership and therefore no determination has been made whether the net operating loss carryforward is subject to any Internal Revenue Code Section 382 limitation. To the extent there is a limitation, there could be a reduction in the deferred tax asset with an offsetting reduction in the valuation allowance.

The Company applies the elements of FASB ASC 740-10 “Income Taxes - Overall” regarding accounting for uncertainty in income taxes. This clarifies the accounting for uncertainty in income taxes recognized in financial statements and required impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority. As of June 30, 2018 the Company did not have any unrecognized tax benefits and has not accrued any interest or penalties through 2018. The Company does not expect to have any unrecognized tax benefits within the next twelve months. The Company’s policy is to recognize interest and penalties related to tax matters within the income tax provision.